As tax professionals, it’s essential that we keep ourselves updated with recent cases and their implications.
In a recent case, two individual taxpayers who owned a property in Tasmania set up a company to run a grazing business.
The company paid the individuals an agistment fee of $20,000 per annum, which they loaned back to the company.
The taxpayers claimed significant tax deductions for expenses related to carrying on a business, but the Commissioner limited deductions to the agistment income of $10,000 each.
The key issue under consideration was whether the taxpayers were carrying on a business.
As tax professionals, we know that it’s not necessarily any one factor that determines whether a business is being carried on, but a combination of all the facts and circumstances.
Factors that pointed in favour of carrying on a business included a degree of systematic, business-like behaviour and a reasonable fee for agistment.
However, factors against carrying on a business included absence of a profit-making purpose, an uncommercial arrangement for payment of the fee, and lack of evidence of agreed care services.
This case is a good reminder of the importance of carefully considering all the relevant facts and circumstances when deciding whether an entity or individual is carrying on a business.
It highlights that having a profit-making purpose, conducting transactions in a commercial manner, and maintaining proper documentation are crucial in demonstrating that a business is being carried on.
If you have any questions, please feel free to reach out.